RH Q3 2020 Report – significant growth, record-beating results and a physical-first philosophy

Thursday, Dec 10, 2020

Luxury home furnishing retailer, Restoration Hardware, has surpassed Q3 forecasts with their latest earnings report. The company showcased record-beating numbers.

RH’s Q3 comp featured the following highlights:

  • Total company demand +33% Q3 RH Core Demand +42%
  • GAAP net revenues increased 25% to $844.0M vs. 677.5M LY
  • Adjusted net revenues increased 25% to $844.8M vs. $676.7M LY
  • GAAP gross margin increased 650 basis points to 48.4% vs. 41.9% LY
  • Adjusted gross margin increased 670 basis points to 48.4% vs. 41.7% LY
  • GAAP operating margin of 13.2%
  • Adjusted operating margin increased 1,370 basis points to 26.7% vs. 13.0% LY
  • GAAP net income of $46.4M vs. $52.5M LY
  • Adjusted net income increased +154% to $166.5M vs. $65.4M LY
  • Free cash flow increased 84% to $186M vs. $96M LY

These numbers show significant growth and success for RH that will only continue as 2021 approaches. Stocks for the company have also grown 47% since their last earnings report.

“We believe it’s safe to assume that some level of elevated spending on the home will remain through 2021, and possibly beyond,” said Chairman and Chief Executive Officer Gary Friedman.

Friedman believes in the power of a physical-first philosophy for the company. Although we are living in a heavily influenced digital age, it’s important to remember that we are all physical beings that are craving experiences with others, and this will become even more become heightened after the pandemic is over. RH has decided to look past the digital-first movement and instead, focus on creating meaningful spaces in the industry that drive human interaction and innovation.

RH’s press release noted the following thoughts from Friedman:

There is a growing belief in our industry that physical stores have become a liability and the growth of online is killing traditional retail. It has spawned a widespread movement to downsize, right size, and optimize retail footprints, leading many to declare “The Death of Retail” and pursue a consultant-coined “Digital First” strategy.

I’m reminded of a presentation I attended where Henry Ellenbogen, the founder and partner of Durable Capital Partners, was speaking while he was still the portfolio manager of the New Horizons Fund at T. Rowe Price.

Henry’s presentation highlighted how there were only about 30 public companies every 10 years that reached a billion dollars in revenue and grew earnings at an average of 20% per year for the next 10 years. He referred to those rare companies as “The Compounders” and they were the stocks he and his team worked tirelessly to identify, as they created the greatest long term value for their investors.

Henry also issued a warning: “Beware of those using simplifying assumptions.” He spoke to the fact that companies in industries can move in herds, like sheep, all proclaiming a similar strategy based on the same simplifying assumption. His research identified that compounders rarely moved with the herd, unless they were leading it, and in most cases charted their own unique course.

We believe many in our industry are also moving with the herd, based on the simplifying assumption that online retailing is more profitable than physical stores. Their theory assumes it takes less capital, and has a lower cost structure due to the elimination of store occupancy and payroll. Many retailers have allocated the vast majority of their capital to unnaturally grow their digital business, resulting in shifting, not lifting, sales online at greater costs, driving down margins, while physical stores have been left to rot.

While the web has shined a bright light on the dull and decaying stores that are dying from old age and a lack of innovation, we believe history will demonstrate that the physical manifestation of a brand will prove to be the most compelling and capital efficient way to engage and inspire customers in a physical world.

Many who report on retail’s imminent death are overlooking the obvious. We are physical and social creatures. It’s why we still go to theaters to watch movies, concerts to listen to music, ballparks to see a game, casinos to place a bet, and restaurants to grab a bite. We don’t believe “bucket lists” of the future will be filled with lonely online activities, with or without AI, AR or VR. And although the virus has limited our abilities to interact, we believe that post pandemic the need for physical and social interaction will be greater than ever. We look forward to experiencing new restaurants and resorts, plazas and parks, markets and malls, stadiums and yes, stores.

The ideas of the future don’t exist in the past, and neither do the stores of the future. The truth is, most retail stores are archaic windowless boxes that lack any sense of humanity. There’s no fresh air or natural light, plants die in a department store, and I’m sure it’s not the best environment for humans either.

That’s why we don’t build retail stores. We create inspiring spaces that blur the lines between residential and retail, indoors and outdoors. Spaces that are more home than store. Spaces that are filled with fresh air and natural light, with garden courtyards, rooftop parks, restaurants, wine vaults and barista bars. Spaces that are an integration of food, wine, art and design. Spaces that activate all of the senses, and spaces that cannot be replicated online.

Source: RH Press Release 12/9/20
Photo Credit: RH Store Locations

About Restoration Hardware
RH (NYSE:RH) is a curator of design, taste and style in the luxury lifestyle market. The company offers its collections through its retail galleries across North America, the company’s multiple Source Books, and online at,,, and

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